Matz: Proposed Stress Tests 'Extremely Important'

NCUA Board Chairman Debbie Matz told Credit Union Times there is no reason why a credit union with assets of $10 billion or more should not be subject to the stress testing rule that other financial institutions are required to follow under the Dodd-Frank Act.

“Our share insurance fund is $11.7 billion, so there are four credit unions with assets over $10 billion. Three of those four are larger than our share insurance fund,” Matz said in an interview following the NCUA board meeting on Thursday.

“So it’s a very significant risk to the fund and there’s no reason why a credit union of $10 billion or more should not be held to the same standard in terms of forward-looking testing that other financial institutions are held to,” she added.

The NCUA’s proposed rule would require capital planning and stress testing for credit unions with $10 billion of more in assets. Matz said the rule is essential to the protection of the NCUSIF.

“If credit unions don’t have sufficient capital, then they will not be able to absorb losses and if they are in a vulnerable situation, they won’t be able to survive,” Matz said. “So if a credit union of that size fails it will have a dramatic effect on the share insurance fund and on the entire credit union industry.”

If NCUA’s stress test shows that a covered credit union does not have the ability to maintain a stress test capital ratio of at least 5% on a pro-forma basis under expected and stressed conditions throughout the nine-quarter stress test period, NCUA will require the credit union to take steps to enhance capital and/or may take other supervisory action against the credit union, said the Board Action Memorandum from the October meeting.

“We are recommending that that level of capital be 5% even though internationally the level set for banks is 4%,” Matz said.

“We’re looking for comments on this but I personally feel this is extremely important not only to those particular credit unions but to the entire industry,” she said.

The credit unions that would be required to comply are the $54 billion Navy Federal Credit Union in Vienna, Va., the $27 billion State Employees’ Credit Union of Raleigh, N.C., the $16 billion Pentagon Federal Credit Union in Alexandria, Va., and the $12 billion BECU in Tukwila, Wash.

The NCUA’s stress tests would be based on the Sept. 30 financial data.